https://woobull.com/https://woobull.com/favicon.pngWoobullhttps://woobull.com/Ghost 1.26Sat, 30 May 2020 14:05:37 GMT60This is a thread on altcoins, first published on Twitter.

Altcoins are nuanced. We have:

Protocol coins

Utility tokens

Security tokens

Non-fungible tokens

But to an investor, there's only 2 types. Oscillators and Degenerators.

You can spot them on this chart of the entire market.

The vast majority of alt-coins

]]>https://woobull.com/the-two-types-of-altcoins-an-investors-view/5dc3d58246d11c00383050cdThu, 07 Nov 2019 08:43:20 GMTThis is a thread on altcoins, first published on Twitter.

Altcoins are nuanced. We have:

Protocol coins

Utility tokens

Security tokens

Non-fungible tokens

But to an investor, there's only 2 types. Oscillators and Degenerators.

You can spot them on this chart of the entire market.

The vast majority of alt-coins are Degenerators. Their price chart has a measurable half-life, like radioactive decay. Plotted on a log chart, it's a straight line down.

This one is Namecoin, a promising coin of its era, there's over 2000 examples like this.

Only a small handful are Oscillators.

Oscillators are proving store of value (SoV) properties. To qualify they need to keep up with BTCUSD gains. To find them, plot their BTC value. It must oscillate around a horizontal line, for at least one full bull-bear cycle (around 4yrs). More cycles are better.

Let me bring up this Oscillator. It's DOGE, a coin that was created as a joke, it has had no active development for years. It's a humour fork of Bitcoin offering no technical innovation.

And it's a freaking oscillator.

DOGE achieved SoV because of Lindy Effect. It's listed on nearly all exchanges, it's supported by most wallets, it has a liquid market.

Note I didn't say it has cutting edge technology, scaleability, fancy smart contracts, governance, or has solved sharding. I point this out to mock the common thought train that you need innovation and cutting edge tech to build value in your coin. These are monetary instruments, they build value with economic network effects.

Here's an interesting one...

It's DCRBTC. It's at a critical stage coming onto completing it's very first full bull-bear cycle, it needs to emerge cleanly holding it's horizontal oscillation against BTC. Only then can we say it's achieving SoV properties.

If you plan on being in altcoins here's my rules of engagement:

It's critical to determine a Oscillator from a Degenerator.

Oscillators are good to enter and exit to stack more BTC.

Never HODL a Degen, period. GTFO.

Be careful on the coins younger than one full cycle.

]]>Introducing the Bitcoin Difficulty Ribbon. When the ribbon compresses, or flips negative, these are the best times to buy Bitcoin. The ribbon consists of simple moving averages on mining difficulty so we can easily see the rate of change in difficulty.

How it the Difficulty Ribbon works

This visualisation of

]]>https://woobull.com/introducing-the-difficulty-ribbon-the-best-times-to-buy-bitcoin/5d4319ac15065a0038114405Thu, 01 Aug 2019 16:59:17 GMTIntroducing the Bitcoin Difficulty Ribbon. When the ribbon compresses, or flips negative, these are the best times to buy Bitcoin. The ribbon consists of simple moving averages on mining difficulty so we can easily see the rate of change in difficulty.

How it the Difficulty Ribbon works

This visualisation of network mining difficulty speaks to the impact of mining on Bitcoin's price. As new coins are mined into existence, miners sell some of their mined coins to pay for production costs. This produces bearish price pressure.

The weakest miners sell more of their coins to remain operational. When it becomes unsustainable, they capitulate, hashing power and network difficulty reduces (ribbon compression), leaving only the strong, who sell less leaving more room for more bullish price action.

Typically we see this at the end of bear cycles, after miners capitulate, the lack of miner selling pressure allows the price to stabilise and then climb; the classic accumulation bottom.

Miners capitulate in bears, but also during block reward halvening events when suddenly only half the coins are mined for the same costs and the market price has yet to catch up to pay for it. We can easily see the compression after each halvening (marked as vertical lines) as miners die off.

As a final note, notice how the 2019 the 2012 bull market have the same structure, we saw severe mining capitulation (i.e. the ribbon flipped negative), the resulting vacuum in selling pressure lead to a shorter accumulation band before price breakout. Thus this bull market has resembles 2012 more than 2016 structurally.

]]>For those familiar with NVT Ratio, the data from the early years comes off very skewed, sometimes written off as noisy rubbish data.

To answer the mystery of early NVT moonage, come with me on a trip down memory lane and visit the transactional data of Bitcoin's early years.

How

]]>https://woobull.com/bitcoins-early-investment-era-under-nvt-ratio/5c983ee1b7c45a00bf8e2b1dSat, 13 Apr 2019 01:05:32 GMTFor those familiar with NVT Ratio, the data from the early years comes off very skewed, sometimes written off as noisy rubbish data.

To answer the mystery of early NVT moonage, come with me on a trip down memory lane and visit the transactional data of Bitcoin's early years.

How Bitcoin transactions work

First on our journey we must understand how a Bitcoin transactions work...

All transactions on the network consists of shards of BTC value (called UXTOs) moving between wallets. This is what a typical transaction might look like...

In this example, a 0.75BTC shard was sent to a recipient, and importantly there was a new 0.25BTC shard returning to the sender as the change from the transaction. In this common example the transaction had two output shards.

When sending to others we usually see 2 or more outputs due to the change output returning. (Sometimes there are a multitude of outputs, especially if payments are made to many recipients in the same transaction, Bitcoin exchanges like to do this for efficiency.)

Another common thing we do is cleaning out a wallet, sending all coins to a new wallet. This is a common example of a single output transaction.

Now here's a special case...

This transaction has no inputs, and one output. This happens when a new coin is mined into existence, we call this a coinbase transaction.

Great, after that primer we we can revisit Bitcoin, the early years...

The early investment market

In the early era, the network was dominated by mining. Coins were either mined straight into wallets and held, or moved from one wallet to another. We can see this because the average outputs hovered around 1.

On 5th October 2009, a website called New Liberty Standard started pricing bitcoins using the price of electricity it took to mine them. This was the first time Bitcoin had a daily price.

By 16th January 2010, New Liberty Standard started pricing according to buy and sell demand, and the price jumped 19x from 0.07 cents to 1.3 cents.

On 25th May 2010, a second market opened called Bitcoin Market. It also traded according to buy and sell demand. (Its first day of trade had a close price of 0.3 cents with a volume of 1000 BTC, that's $3 of trade volume.)

The third exchange to open was the infamous MtGox, launching one month later in July 2010. It's here we see the price leap again, and the average outputs per transactions start to climb towards 2, this is where the early investment market starts to develop. Average outputs climbing to 2 was the telltale sign that transactions between investors were outnumbering those from mining.

Breaking down the early market under the lens of NVT

Now we can move onto the NVT domain and look at the actions the market took in its early history. Here's the NVT Ratio chart using the latest volume estimates from Coin Metrics Pro.

Breaking this down:

The Great Inflation. This is the period where the sheer volume of new coins arriving via coinbase transactions meant the value flowing on the blockchain was high in comparison to the money supply. (NVT Ratio by definition is the ratio of the money supply to the coins flowing on-chain). As the money supply increased the impact of the coinbase transactions got diluted and you can see the NVT Ratio climbing steeply as the ratio of money supply outstrips the new coins moving into existence.

The early market begins. In June 2009 interestingly before even the first prices of BTC was published by New Liberty Standard, we see activity between different HODLers, likely OTC trades. Enough coins move on-chain to bring NVT Ratio downwards over time, we can also confirm this as a blip on the outputs per transaction chart further above. (One could suggest this was also testing by early supporters of the network, but the volumes and time period of sustained activity look too consistent and high for this to be a viable reason in my opinion).

Demand based pricing. When New Liberty Standard introduces their demand based pricing we see an immediate increase in NVT, the flows of coins between HODLers dry up as price jumps 19x. We also see the market adapt to the new prices and on-chain flows between investors start to increase again, we see NVT dropping.

MtGox launches. With the advent of MtGox which immediately became popular, we see further drives of on-chain volume (as a percentage to the supply) to the normal zone we typically see in the Bitcoin investment era.

Investment dominates mining. As early as April 2011, investment flows mature into the same kind of ratios we see today. NVT comes into the normal band which we've seen for the last 8 years.

]]>Two approaches to bring bitcoin-days-destroyed into the price domain

Okay, so this article is now well overdue given the recent price action. BTC never rests! The last few months have been very productive in terms of discovering new valuation metrics based on on-chain analytics. The recent proposals using coindays destroyed

Okay, so this article is now well overdue given the recent price action. BTC never rests! The last few months have been very productive in terms of discovering new valuation metrics based on on-chain analytics. The recent proposals using coindays destroyed by Tamas Blummer and the team at Adamant Capital have put this essential metric once again on the map. We thought we’d give it a go at coming up with a way to best translate the concept of destruction into a precise price level for market analysis.

Experiment A: Cumulative Value-days Destroyed (CVDD) by Willy Woo

When coins move from one investor to another, the transaction carries both a USD value and also destroys a time value relating to how long the original investor held their coins. CVDD tracks the cumulative sum of this value-time destruction as coins move from old hands into new hands as a ratio to the market age. It is calculated with the following formula:

Experiment B: Transferred Price and Balanced Price by David Puell

Looking at this as a life-to-date moving average of spending behavior (again, old hands selling into new hands), it can be assumed that when subtracted from realized price (the average paid for all coins in the market), a “fair” valuation measure emerges. Balanced price denotes the level at which, during bear markets, a full detox has been achieved — market price matching what was paid minus what was spent.

It goes without saying that this evokes Delta Price in both calculation and visualization. We believe that Delta Price serves as a technical analysis proxy of Balanced Price. The former seems to be agile enough to catch exact bottoms — the “wicks” — while the latter catches the full accumulation level prior to the bull run, also defining the brief moment when price remains below it as “capitulation.”

More iterations on coindays destroyed to follow. Stay tuned…

This article was co-authored with David Puell, Head of Research at Adaptive Capital.

]]>Let's delve into a mystery of this 2018-2019 bear market that David Puell and Murad Mahmudov and I have been exploring for months... Why does on-chain volume look so bearish while many of our other (to be published) metrics tell a more positive story?

Up to now, whenever you saw

]]>https://woobull.com/on-chain-volume/5ca7821eb7c45a00bf8e2ba8Thu, 04 Apr 2019 23:55:00 GMTLet's delve into a mystery of this 2018-2019 bear market that David Puell and Murad Mahmudov and I have been exploring for months... Why does on-chain volume look so bearish while many of our other (to be published) metrics tell a more positive story?

Up to now, whenever you saw a chart of mine that had on-chain volume as an ingredient, the volume estimates came from Blockchain.com's API feed (BCHAIN). This was the first and most reliable source until recently.

The Bitcoin Network needs sufficient on-chain volume in order to fuel a bull market. BCHAIN volume estimates painted a very grim picture of the market, it was saying "lots more bear to come".

If we wanted to double check BCHAIN volume estimates, how could we do this?

When you think about it, coins that are younger than 1 day of HODL means they have shifted in the last 24hrs. This gives us an alternative estimate to 24hr on-chain volume.

When I did this**, it suggested a drift in the BCHAIN volume estimates since 2017 to the low side. This would point towards an overly bearish picture from BCHAIN.

In fact, 1d HODL "volume" pointed to the bottom being in for quite some time. The accumulation band having already formed.

Fortunately we now have a completely new on-chain volume estimate from Coinmetrics, currently available in their CM Pro suite***.

Here's how they stack up...

Both my 1 day HODL, and the new CM Pro volume estimates suggests the accumulation bottom is now well under way.

*** CM Pro volume estimates are published under permission from Coinmetrics.

]]>Summing Bitfinex's margin BTCUSD long and short positioning charts gives us an indication of speculator decisiveness. You can pull this chart up on TradingView with "BTCUSDLONGS+BTCUSDSHORTS". To be clear this is a view into speculator margin trade activity, in essence the volume they are borrowing from funders in order]]>https://woobull.com/on-peak-indecisiveness/5c7b4e33d87e5700bfd2d421Sun, 03 Mar 2019 04:04:34 GMTSumming Bitfinex's margin BTCUSD long and short positioning charts gives us an indication of speculator decisiveness. You can pull this chart up on TradingView with "BTCUSDLONGS+BTCUSDSHORTS". To be clear this is a view into speculator margin trade activity, in essence the volume they are borrowing from funders in order to position themselves for a short term leveraged trade (think of this as selling or buying more than you can normally afford via the use of lending).

Zones of minimal Long + Short positioning have historically coincided with bearish price action during bear markets (the opposite is true for bull markets).

Trend reversal

Interestingly in the Jan 2018 BTCUSD double top, peak indecisiveness did a phase shift. We went from "more bullish price action", to "more bearish price action"... an early warning that the trend had reversed and that the start of the bear market had begun.

]]>

If the Bitcoin network was a payments startup this chart would track its annual sales.

Store of value properties is what gives crypto networks value, utility is overrated for the purposes of investment appreciation. Utility is a red herring for investors.

In the case of Bitcoin, its real utility is really just a

]]>https://woobull.com/the-importance-of-store-of-value-properties/5c3363c1eadba800c097c2afMon, 07 Jan 2019 15:31:42 GMTThis article was first tweeted in short form on 9th Jan 2019.

Store of value properties is what gives crypto networks value, utility is overrated for the purposes of investment appreciation. Utility is a red herring for investors.

In the case of Bitcoin, its real utility is really just a bucket, it's a bucket to store value. Make no mistake that the majority of asset value in the world is derived from players parking value into an asset for storage. Whether that be a house, a lump of gold, or even, to a lesser extent, stocks.

To hit this home in crypto... the rise of ETH was NOT from utility. It was NOT from users buying ETH to get Gas to fuel smart contracts. It was from ICO token treasuries parking their funds in ETH as a store of value.

Unfortunately for ETH, the ERC20 contract that opened the pathway for ETH as a store of value was inorganic. It forced ETH as the token to raise funds. It seemed good to keep funds in ETH as ICO mania pushed values up as more and more projects parked their treasuries in ETH. Easy up equals easy down. Treasuries bailed ETH cascading it down.

Despite being a red herring, utility attracts usage. In a way, through the eyes of the investor, this utility is merely marketing exposure. It opens an opportunity for the network to be used as a store of value. But without solid store of value properties in the network, the network won't sustain high long term capital appreciation apart from short term noob fueled bubbles. Or what we saw with ETH.

What gives a network good properties for store of value? I like Murad Mahmudov's prioritised framework of:

I can rewrite this as:(1) don't break on me(2) don't cheat me in the future(3) bring more money in(4) look after the above

(1) (2) and (4) are often discussed. (3) is not deeply studied enough, these network effects are key.

No other crypto-asset has the liquidity, Lindy Effect and infrastructure close to Bitcoin. Ethereum is a clear second, but fails on (2).

Many projects try to bootstrap (3) by employing market makers to stimulate liquidity. They also market the impression of a growing ecosystem with MOUs of partnerships. This is all hot air. Look for organic growth, it's the hard yards that matter.

For example, an investor should be careful regarding organic liquidity versus inorganic liquidity. The former is a sign that real people are using the asset as a store of value, organic liquidity is a by-product of people entering and exiting the asset. A good way to check this is comparing on-chain volumes. Real entries and exits are reflected on the blockchain, market makers do not clear funds onto the chain. If the liquidity is organic, then it means you can exit when it's time to reallocate capital to other buckets. If it's inorganic, the market maker may quit and you're left high and dry.

(1) (2) and (4) are usually objective, (3) is often faked. Look deeply into (3) and make sure the network effects are true and here to stay. Look for organic store of value properties.

]]>

Why HODL?

It allows you to capture the gains of the market.

Trading lets you beat it. In that zero-sum game, 10% of participants win, 90% lose. Are your skills in the top 10%? If not and you're still winning it's due to luck. Unfortunately being on the right side

Trading lets you beat it. In that zero-sum game, 10% of participants win, 90% lose. Are your skills in the top 10%? If not and you're still winning it's due to luck. Unfortunately being on the right side of luck degrades over time.

Why TRADE?

Experiencing how markets work is a modern day life-skill.

The world runs on markets. Buying a house, saving for your retirement, living abroad, you'll be exposed to markets. When learning to trade, your goal is to maximise the amount of lessons per dollar you lose.

"Overheard in a chatroom" is an experimental format I'm trying. They are real conversations coming from my participation on Twitter and social channels like Telegram and Slack. I've cleaned them up to make them more legible for the reader. My goal is to save time from long hand blog posts while hopefully keeping the form relatively engaging.

SK:

This prediction was spot on:

I think we are gonna go to $5500-5700 next, I can't see $7000 holding. Most likely we'll balance a bit, then we'll slide through. Long timeframes here, looking into June for rough timing of this to play out at a best guess. /1 pic.twitter.com/pCN0N97vp6

Still playing out. But, mostly according to the script. Haven’t seen the updated NVT charts, yet.

WW:

Thanks, but not to be princess about it these ain't predictions. I try to forecast based on [derivatives of historic] price, volume and blockchain data.

... looking at what happened in the past to see what may be more likely in the future.

The corollary from this theme is weather forecasting... You take known models of complex interaction and you come up with a likely outcome. e.g. "tomorrow could likely be a storm", "tomorrow is very likely to be sunny", "tomorrow is a transition zone of two weather systems, so hard to tell"

I think of TA [technical analysis and charting that traders do] in exactly this forecast context. Veteran traders like Peter Brandt are forecasters. He's had decades of trading, he's removed much of his personal bias. He looks at chart setups more objectively. Like he knows the statistical probability of say a bull wedge breakout being 67% up and 33% down.

[The acid test for forecasting in my opinion is whether it can be codified it into an algorithm].

Most people have too much bias, it's like they are "willing the price" in a direction they want, then drawing the chart. And noob traders are the most subjective, they try to predict and not forecast.

To this point, everytime I tweet a bear call, the noob troll armies attack, they don't wanna hear it. Vinny Lingham's bearish tweets [during the Bitcoin scaling debate] last year had the same issue, the trolling got so bad he ceased making price calls. This is the masses losing objectivity and just getting emotional, which is exactly what we as traders wanna drop.

NK:

In the past, it became unprofitable for miners and I lost a ton on cloud mining contracts... don't make my mistake. I was so green then but still... hindsight

WW:

NK, I think what you're saying is "what about black swans?" The stuff we can't forecast as we've not seen it before, i.e. we don't have data, so therefore our predictability is terrible. [Author of Black Swan], Nassim Taleb, got rich betting on the edge cases being priced wrong in markets, he went into financial instruments to milk that flaw in modelling. (Same stuff those two young guys in The Big Short movie were doing).

With the mining corollary, I actually think that was forecastable. There was enough data to show trends, the market was big enough, so was less random, all that was missing was bringing in data from chip manufacturing and its impact on costs. Admittedly these are complex and non-linear, you ideally need algorithms and simulations (as you need a speculative future price curve for Bitcoin as an input) but industrial scale miners have this stuff going on in the background.

.
.
[yadda yadda]
.
.when moon?
.lambos!
.
.

]]>

I think rebalancing a crypto portfolio to reduce exposure to a single crypto-asset is the most intuitive yet completely wrong move long term investors make.

Maybe your portfolio starts off nice and balanced and may look something like this...

I think rebalancing a crypto portfolio to reduce exposure to a single crypto-asset is the most intuitive yet completely wrong move long term investors make.

Maybe your portfolio starts off nice and balanced and may look something like this...

Maybe ICO “C” is that coin you bought only because your friend Carl would not leave you alone and you were sick of mopping up his froth from your new tiled floors every time he visited.

A year later, it turns out ICO "C" has Satoshi at the helm, he has solved the scaling problem, integrates a Vitalik Virtual Machine, promises to impeach Trump via a cryptographic proof and will herald a new era of world peace. Maybe your portfolio now looks like this...

You’re now Carl’s new best friend. But you’re going to rebalance right? You’d be crazy not to right?

Here’s the thing about rebalancing a portfolio

Under modern portfolio theory you want to regularly rebalance your allocations to manage risk and maximise returns.

The maths seeks allocations that constantly balances your downside risk while maximising gains, taking into account every market event that may happen, like say famine, an energy shortage, or a madman leading a rouge nation into war.

Here we are talking about holding baskets in various industries that have reverse correlations. For example you may hold both oil and airlines stocks, in an oil shock the two holdings will balance each other out. Oil goes up, airlines go down.

But where does your crypto portfolio fit into this? At this stage of the game, crypto-assets is so nascent that it falls under a single sector called "emerging tech". These are not mature industries. These are unproven technologies that have not yet made it into the public equity markets to take their stake in the global economy.

Here’s what emerging tech really looks like in the pre-IPO game that VCs and Angels play in.

It’s a power law. Only a few win. And they win big. The rest die.

Rebalancing a high performer is like selling down your Facebook convertible notes to get more MySpace because you think that should reduce your risk. Like unloading some Amazon.com for Pets.com in the dotcom era.

Don’t rebalance the winners. Keep to your target allocations.

Token supply as a target allocation

Wait a second…. How can we have target allocations if you're saying it's a mistake to use percentage holdings?

I would suggest using an external metric.

The best metric I’ve seen is a percentage of the token supply. This was taught to me by a friend early in my crypto investment career, I call her The Coin Whisperer.

To this day her existence and wealth remains a legend that is whispered between only a priveleged few insiders within the industry. She would take 1/100 of the token supply if she really liked the project, or maybe 1/1000 of tokens if it was more speculative. Of course scale this to your own means.

Venture Capitalists who work in the domain of emerging tech do exactly this, they take a percentage of the company in (hopefully) the Series A, they never sell out until their liquidity event, the IPO or acquisition. They understand the power law dynamics between the winners and losers.

About those shitcoins

I should add this is not a blanket rule. In many unregulated and thinly traded markets, market manipulations along with pump and dump schemes can run rife. By all means sell into a "shilled shitcoin pump", those market manipulations made on thinly traded low quality coin projects. All my opinions here are in the context of long term organic moves on quality projects with liquidity.

Author's Notes

This was first published in a tweet earlier this year. I'm digging it up and posting it here as I feel it's a useful viewpoint for long term investors.

]]>NVT Ratio is a new valuation indicator that I introduced last year based on network fundamentals, namely value flowing through the blockchain.

What is NVT Signal?

Standard NVT Ratio is simply

]]>https://woobull.com/nvt-signal-a-new-trading-indicator-to-pick-tops-and-bottoms/5a80b09a1601850022b887daSun, 11 Feb 2018 21:50:38 GMTNVT Ratio is a new valuation indicator that I introduced last year based on network fundamentals, namely value flowing through the blockchain.

What is NVT Signal?

Standard NVT Ratio is simply the Network Valuation divided by the Transaction Value flowing through the blockchain and then smoothed using a moving average. What Dimitry did was to apply the moving average just to the volatile Transactions component only without smoothing the already stable Network Valuation component.

This produces a much more responsive chart. Responsive enough to use as a trading indicator.

This is probably the first trading indicator to use blockchain data instead of the basic price and volume data coming in from exchanges.

Using NVT Signal

For BTC, any level above 150 is in the overbought zone, indicative of a market top...

...and levels below 45 tends to be oversold...

Calling market tops accurately

Being in the overbought zone doesn't tell us exactly when the market is about to pop. However by adding support trendlines on the signal, we can call the tops quite accurately.

Here's the tops to the last three BTC bubbles accurately foretold by NVT Signal + trendline technical analysis...

We should be aware that calling market tops has been one of the most elusive things for a trader.

Note I'm drawing these trendlines above in zones when the levels are above 150 (long range overbought). We can also do trendlines below the 150 levels to pick local maximums.

Calling market bottoms accurately

Similarly we can use trendlines to pick bottoms accurately...

I left you with this chart as this is where BTC is today. The NVT Signal is picking we've bottomed.

Where can I get this chart?

For the time being, I've put a live chart of NVT Signal in Woobull Charts.

For the future, I'm working on a new project called Fomonomics which will bring in a whole array of off-exchange data into view for traders and investors. Watch this space.

]]>Here's a wee chart below to illustrate my thoughts on Bitcoin's transactional network the last two years.

The Bitcoin network hasn’t been able to keep up with peak transactional demand since 2016, since 2017 it hasn’t been able to keep up with the AVERAGE transactional demand.

Meanwhile our

]]>https://woobull.com/bitcoin-network-transaction/5a483c7c1ffbab002d24a9feSun, 31 Dec 2017 02:09:26 GMTHere's a wee chart below to illustrate my thoughts on Bitcoin's transactional network the last two years.

The Bitcoin network hasn’t been able to keep up with peak transactional demand since 2016, since 2017 it hasn’t been able to keep up with the AVERAGE transactional demand.

Meanwhile our current scaling path is Segwit which relies on a the entire industry to organically adopt, and this will take some time. And here's our progress thus far...

My guess, optimistically, is we have at least one year of pain until Segwit gets adopted widely enough to alleviate serious congestion. (The Lightning Network thereafter should allow even more pain to be lifted but this is probably an even slower adoption curve due to its additional complexities for user interation.)

Until then, I suspect keeping blocks this small will have a side effect of the most dangerous type of centralisation as speculators keep large funds in exchanges, also known as crypto-asset banks, rather to risk sending funds into the mempool abyss awaiting processing. Very ironic.

Thoughts on the Markets?

I'm not entirely sure what will happen. There's really two effects which I think will superimpose to form the general picture of 2018.

A tidal wave of money

I'm expecting a tidal wave of money to hit the crypto-asset markets. This is because institutional investors will be pretty much forced to allocate a fraction of their combined trillions into a new non-correlated asset class to hedge risk, and only in 2018 are the crypto-assets big enough to carry this money.

They'll go to the largest liquidity pools, which traditionally means Bitcoin but in 2018 to a lesser degree the option is there for highly liquid altcoins like Ethereum and Bitcoin Cash. I suspect Bitcoin will be the the front runner as $200 transaction fee will hardly deter a hedge fund.

The altcoin waterfall effect

However in early 2017 when congestion forced the transaction fees up and speculators could not sweep the scaling debate under the rug, we saw a waterfalling of money into altcoins. This could happen again.

My best guess?

Everything goes up. But particularly:

High liquidity crypto-assets

Protocols that promise scaleability

Protocols that promise governance

]]>

Preface:

Last week I spoke in front of an audience of 1000 fund managers, bankers, and private equity folk in New York City at the inaugural Concensus Invest conference organised by CoinDesk. Here are my slides and commentary.

Preface:

Last week I spoke in front of an audience of 1000 fund managers, bankers, and private equity folk in New York City at the inaugural Concensus Invest conference organised by CoinDesk. Here are my slides and commentary.

I don’t come from Wall St. I’m not a formally trained analyst. My background comes from the world of emerging tech and startups. Hence my view and analysis tends to be outside of the box.

I publish brain farts!

This is a brief overview of some of my stuff. Maybe we should call this "Woobull’s greatest hits".

I published this "3 cats and a moon" fractal pattern that BTC reliably traded for 3 years around February this year. Interestingly it ceased to work after publication.

This was at the time of Bitcoin's ETF decision. My theory was that Wall St money failed to enter via an ETF, so instead traders directly bought into the asset around Mar 2017. We saw an uptick in price accordingly, when the price really should have dropped lower according to my models.

The new money changed the psychological trading profile that Bitcoin was trading. A new animal had entered the market.

NVT Ratio is another invention of mine. This works like Bitcoin’s PE Ratio, indicating when BTC price has outstripped fundamental value. Like PE Ratio in equities, fast growth companies exhibit higher ratios, similarly Bitcoin exhibited higher NVT Ratio values in its early high growth phase.

Note this is a laggy indicator and is best used to distinguish overvaluation (hence the start of a bear season) from a consolidation during the dead-cat bounce phase of a price correction.

OK... so where are we today in 2017? We are at 0.5% of the world M2 money supply.

We are at approximately 1% of world population as users. (Estimates range from 1-3%). This is equivalent to 1996 for the Internet.

With Bitcoin we are seeing user count double every 12 months. This was calculated with my work tracking Google Trends data on the assumption that users search BTCUSD price.

If this trend continues, we are 9 years away from half the world using Bitcoin.

Here’s another view of #Bitcoin’s growth on a long term chart. Remember, each altitude climb here is a 10x. All crypto-assets combined is only 0.5% of World M2 Money.

Seems small but we are 66% of the way on our journey to usurp USD M1 money.

Let me reiterate, Bitcoin is 4 years out from exceeding the world reserve currency. Sounds radical, no?

The data suggests by 2022, Bitcoin’s volatility will also be nearly as low as fiat FOREX.

This means grandma can have a USD savings account earning 1% per year, or she can have a BTC savings account earning 1% per week at similar risk profiles.

Now #Bitcoin is not the only story to be told here. We have strong competing altcoins that are on an even higher trajectory, they may even cross USD M1 before Bitcoin. I’ve removed some of the top 10 coins to make this chart clearer.

So let me zoom out a bit and talk about where we are in the 10,000 year view.

In 2013 they called it drug money. In 2017 they called it a bubble. It’s not in a bubble. We’re on the final part of digitising the world.

We are seeing the final phase of the Post Industrial Revolution which started in the 1960s-1990s with the invention of the microprocessor through to the expansion of the Internet.

Bitcoin is not just money. It’s the invention of an Internet-native digital scarcity. And with that breakthrough, software will eat the financial world.

Blockchain assets will be bigger than the approximately 70 trillion in money, there’s another 80 trillion in equities, and I’m told well over 200 trillion in real estate. This will all be digitised.

So where are we in 2018?

Stealth, Awareness, Mania, and Blow-off are the stages of the investment cycle. With Bitcoin only the Geek money invested in the Stealth Phase. Smart money was displaced to the Awareness Phase.

Normally institutional money arrives during the Awareness Phase, but due to regulatory bars institutions were not allowed to enter. Hence we are now seeing institutional money arrive late competing with retail money in the early mania phase to create a super bull season right now in Q4 2017 and into 2018.

Zooming in closer. We are also seeing Bitcoin itself losing its dominance over the last 5 years. This is a sign of the markets starting to mature as a fully digital economy should not be 95% money. All industries will eventually fill this economy when this fully matures. (Data by Coinmarketcap)

Let’s look at the individual performance of the other coins. This is a chart of the top 125 coins by network value. As you can see there are plenty of investment opportunities that can outperform Bitcoin. (Bitcoin can be seen as the longest and oldest price line above).

That last slide was the top 125 outliers, this chart shows essentially the entire market. The darker colours moving to lighter represent the top 200, 400, 600 etc.

Newer coins are outperforming older coins in general. Also buying the entire market tends to be neutral in performance.

Selection and filtering is key.

I suggest selecting just as a Venture Capitalist would. Vet the team, call them up, are they competent? Check their tech, read their source code, is the tech stack useful? How big can the market grow to? What are the token dynamics, is the token designed for high velocity or low?

Successful projects will follow what I call the Falcon 9 launch trajectory.

Ride the early steep trajectory for 2-3 years, then roll the investment into new projects capable of climbing steeply. It’s a venture capital model. Returns that Bitcoin offered in 2011-2013 are still available today, but there’s work involve to find the gems.

Thank you, and happy investing for 2018. Much of my research is published on my blog at Woobull.com and most recent research on Twitter at @woonomic.